PharmBlue specialty pharmacy wordmark
A California state appeals court affirmed a lower ruling that 340B contract pharmacy PharmBlue overbilled the state for 340B drugs it obtained from manufacturers on its clients' behalf.

Calif. Contract Pharmacy Overbilled Medicaid for 340B Drugs, State Appeals Court Holds

A California state appeals court has affirmed a lower state court’s judgement that a 340B contract pharmacy overcharged the state Medicaid agency, Medi-Cal, nearly $2.5 million more than the pharmacy was entitled to receive for 340B drugs between May 2015 and March 2017.

Avita Care Solutions, which acquired the pharmacy PharmBlue in 2020, said it “does not intend to appeal this matter to the California Supreme Court.”

“Avita is compliant with state and HRSA guidelines for 340B billing practices,” Avita CEO Michael Yount said in a statement. He noted that that the overpayment was identified prior to Avita’s acquisition of PharmBlue.

According to the court’s Jan. 19 opinion, two California HIV/AIDS clinics contracted with PharmBlue to dispense medications to patients. The contracts required PharmBlue to obtain 340B drugs from manufacturers on the clinics’ behalf, under bill to / ship to arrangements with the clinics.

“Under its arrangement with the clinics, PharmBlue billed the Medi-Cal program for purchasing and distributing the clinics’ 340B drugs,” the court said. “For each 340B drug billed to the Medi-Cal program, PharmBlue charged its ‘usual and customary’ rate, not the actual acquisition cost of the drug.”

A September 2017 Medi-Cal audit found that PharmBlue should have billed the state at actual acquisition cost, not at U&C, under state law. PharmBlue appealed unsuccessfully first to an administrative law judge and next to Los Angeles Superior Court.

PharmBlue argued it should have been allowed to bill Medi-Cal at U&C, rather than at 340B acquisition cost, in part because contract pharmacies were not named in the relevant state statute.

The state appeals court held that PharmBlue was acting as the clinics’ drug-purchasing agent and thus was bound by the law. “PharmBlue cannot avoid the clinics’ obligation to bill the Medi-Cal program at the actual acquisition cost of the 340B drugs that PharmBlue acquired and dispensed on the clinics’ behalf,” the court said.